1
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
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FOR QUARTER ENDED: JUNE 30, 1997
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COMMISSION FILE NUMBER: 1 - 7094
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EASTGROUP PROPERTIES, INC.
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(EXACT NAME OF REGISTRANT SPECIFIED IN ITS CHARTER)
MARYLAND 13-2711135
- ------------------------------- ---------------------------
(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
300 ONE JACKSON PLACE
188 EAST CAPITOL STREET
P.O. BOX 22728
JACKSON, MISSISSIPPI 39201-2195
- ---------------------------------------- ------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) ZIP CODE
ISSUER'S TELEPHONE NUMBER, INCLUDING AREA CODE (601) 354-3555
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EASTGROUP PROPERTIES
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FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR,
IF CHANGED SINCE LAST REPORT
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED
TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING
THE PRECEDING 12 MONTHS ( OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS
REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING
REQUIREMENTS FOR THE PAST 90 DAYS.
YES X NO
--------- ----------
12,684,228 SHARES OF COMMON STOCK ($.0001 PAR VALUE) WERE OUTSTANDING AT
AUGUST 11, 1997.
2
EASTGROUP PROPERTIES, INC.
FORM 10-Q
TABLE OF CONTENTS
FOR THE QUARTER ENDED JUNE 30, 1997
- --------------------------------------------------------------------------------
Pages
PART I. FINANCIAL INFORMATION
Item 1. Consolidated financial statements
Consolidated balance sheets, June 30, 1997
and December 31, 1996 3
Consolidated statements of income for the
three months and six months ended
June 30, 1997 and 1996 4
Consolidated statements of cash flow for the
six months ended June 30, 1997 and 1996 5
Consolidated statements of changes in
stockholders' equity for the six months
ended June 30, 1997 and 1996 7
Notes to consolidated financial statements 9
Item 2. Management's discussion and analysis of
financial condition and results of operations 11
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of
Security Holders 20
Item 6. Exhibits and Reports on Form 8-K 20
SIGNATURES
Authorized signatures
3
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
JUNE 30, DECEMBER 31,
1997 1996
--------- ---------
(UNAUDITED)
ASSETS
Real estate properties:
Industrial $ 209,719 186,908
Industrial Development 7,507 1,925
Office Buildings 39,195 38,912
Apartments 37,763 37,494
--------- ---------
294,184 265,239
Less accumulated depreciation (27,019) (22,703)
--------- ---------
267,165 242,536
Real estate held for sale:
Land 585 585
Operating properties 14,351 14,293
less accumulated depreciation (859) (859)
Investment in joint venture 4,408 4,367
--------- ---------
18,485 18,386
Mortgage loans 13,515 12,503
Land purchase-leasebacks 527 527
Investment in real estate
investment trusts 3,377 934
Cash and cash equivalents 787 438
Other assets 6,471 6,131
--------- ---------
$ 310,327 281,455
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Mortgage notes payable $ 103,992 115,116
Notes payable to banks 18,449 13,962
Accounts payable and accrued expenses 2,131 2,893
Minority interests 3,267 3,141
Other liabilities 1,552 1,017
--------- ---------
129,391 136,129
--------- ---------
STOCKHOLDERS' EQUITY
Shares of common stock, par
value $0.0001 per share; authorized
70,000,000 shares; issued 12,684,228
shares in 1997 1 -
Shares of beneficial interest, $1.00 par value
per share; authorized 20,000,000 shares;
issued 10,548,965 in 1996 - 10,549
Additional paid-in-capital 171,400 123,780
Undistributed earnings 9,309 10,997
Unrealized gain on securities 226 -
--------- ---------
180,936 145,326
--------- ---------
$ 310,327 281,455
========= =========
See accompanying notes to consolidated financial statements
4
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(In thousands, except per share data)
THREE MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, JUNE 30,
---------------------- ---------------------
1997 1996 1997 1996
-------- -------- -------- --------
REVENUES
Income from real estate
operations $ 11,788 7,514 22,985 14,367
Interest:
Mortgage loans 484 312 1,004 558
Other interest 101 12 186 12
Other 292 273 479 586
-------- -------- -------- --------
12,665 8,111 24,654 15,523
-------- -------- -------- --------
EXPENSES
Operating expenses from
real estate operations 3,661 2,925 6,993 5,666
Interest expense 2,275 1,658 4,711 3,185
Depreciation and
amortization 2,328 1,578 4,722 3,002
Minority interests
in joint ventures 141 50 299 82
General and
administrative expense 707 522 1,401 1,034
-------- -------- -------- --------
9,112 6,733 18,126 12,969
-------- -------- -------- --------
INCOME BEFORE GAIN (LOSS)
ON INVESTMENTS 3,553 1,378 6,528 2,554
-------- -------- -------- --------
GAIN (LOSS) ON INVESTMENTS
Real estate (5) 643 107 1,996
Real estate investment
trust securities - 13 - 13
-------- -------- -------- --------
(5) 656 107 2,009
-------- -------- -------- --------
NET INCOME $ 3,548 2,034 6,635 4,563
======== ======== ======== ========
NET INCOME PER SHARE OF
COMMON STOCK $ .28 .28 .54 .67
======== ======== ======== ========
Weighted average shares
outstanding 12,675 7,238 12,201 6,796
======== ======== ======== ========
See accompanying notes to consolidated financial statements
5
CONSOLIDATED STATEMENTS OF CASH FLOW (UNAUDITED)
(In thousands)
SIX MONTHS ENDED
JUNE 30,
--------------------------
1997 1996
--------- ---------
OPERATING ACTIVITIES
Net Income $ 6,635 4,563
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 4,722 3,002
Gain on investments, net (107) (2,009)
Other (137) (28)
Changes in operating assets
and liabilities:
Accrued income and other assets (1,813) (124)
Accounts payable, accrued expenses
and other liabilites 248 (788)
--------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES 9,548 4,616
--------- ---------
INVESTING ACTIVITIES
Payments on mortgage loans receivable,
net of amortization of loan discounts 563 38
Advances on mortgage loans receivable (1,575) -
Sale of real estate investments - 4,912
Real estate development (5,121) (295)
Purchases of real estate (21,871) -
Purchase of real estate investment trusts shares (2,217) -
Proceeds from sale of real estate
investment trust shares - 211
Real estate improvements (2,093) (3,117)
Proceeds from merger of LNH, net - 903
Proceeds from mergre of Copley, net - (922)
Change in other investment assets 1,107 (135)
--------- ---------
NET CASH (USED IN) PROVIDED BY
INVESTING ACTIVITIES (31,207) 1,595
--------- ---------
FINANCING ACTIVITIES
Proceeds from bank borrowings 43,984 33,194
Proceeds from mortgage notes payables 9,250 -
Principal payments on bank borrowings (39,497) (9,280)
Principal payments on mortgage notes
payable (20,374) (24,679)
Distributions paid to shareholders (8,323) (4,282)
Purchases of shares of beneficial
interest and common stock (241) (115)
Net proceeds from issuance of shares
of beneficial interest 36,654 -
Proceeds from exercise of stock options 417 223
Proceeds from dividend reinvestment plan 138 9
6
CONSOLIDATED STATEMENTS OF CASH FLOW (UNAUDITED)
(In thousands)
SIX MONTHS ENDED
JUNE 30,
--------------------------
1997 1996
--------- ---------
--------- ---------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES 22,008 (4,930)
--------- ---------
INCREASE IN CASH AND CASH EQUIVALENTS 349 1,281
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 438 26
--------- ---------
CASH AND CASH EQUIVALENTS
AT END OF PERIOD $ 787 1,307
========= =========
SUPPLEMENTAL CASH FLOW INFORMATION:
Debt assumed by buyer of real estate - 3,132
Cash paid for interest 4,777 2,968
Fair value of shares issued in Copley merger 47,658 -
Fair value of shares issued in LNH merger 13,640 -
See accompanying notes to consolidated financial statements
7
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY FOR THE SIX MONTHS
ENDED JUNE 30, 1996
(UNAUDITED)
(In thousands, except for per share data)
Shares of Additional Unrealized
Beneficial Shares of Paid-In Undistributed Gain on
Interest Common Stock Capital Earnings Securities Total
-------------------------------------------------------------------------------------------------
Balance, December 31, 1995 $ 6,348 -- 66,228 9,657 667 82,900
Net income -- -- -- 4,563 -- 4,563
Cash dividends declared -- -- -- (4,282) -- (4,282)
Issuance of 18,000
shares of beneficial
interest from exercise
of options 18 -- 205 -- -- 223
Purchase and retirement
of 7,500 shares of
beneficial interest (8) -- (107) -- -- (115)
Issuance of 9,640 shares
of beneficial interest,
incentive
compensation 10 -- 118 -- -- 128
Issuance of 927,366
shares of beneficial
interest, LNH Merger 927 -- 12,713 -- -- 13,640
Issuance of 3,238,773
shares of beneficial
interest, Copley Merger 3,238 -- 44,425 -- -- 47,663
Issuance of 662 shares
of beneficial
interest, dividend
reinvestment plan 1 -- 9 -- -- 10
Change in unrealized
gain on securities -- -- -- -- (667) (667)
-------- -------- -------- -------- ----- --------
Balance, June 30 1996 $ 10,534 -- 123,591 9,938 -- 144,063
======== ======== ======== ======== ===== ========
8
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY FOR THE SIX MONTHS
ENDED JUNE 30, 1997
(UNAUDITED)
(In thousands, except for per share data)
Shares of Additional Unrealized
Beneficial Shares of Paid-In Undistributed Gain on
Interest Common Stock Capital Earnings Securities Total
-------------------------------------------------------------------------------------------------
Balance, December 31, 1996 10,549 -- 123,780 10,997 -- 145,326
Net income -- -- -- 6,635 -- 6,635
Cash dividends declared -- -- -- (8,323) -- (8,323)
Issuance of 2,100,000
shares of beneficial
interest 2,100 -- 34,554 -- -- 36,654
Issuance of 23,800
shares of beneficial
interest from exercise
of options 23 -- 245 -- -- 268
Purchase and retirement
of 8,268 shares of
beneficial interest (8) -- (142) -- -- (150)
Issuance of 6,490 shares
of beneficial
interest, incentive
compensation 7 -- 97 -- -- 104
Issuance of 3,441 shares
of beneficial
interest, dividend
reinvestment plan 3 -- 60 -- -- 63
Purchase of 194
fractional shares of
beneficial interest -- -- (5) -- -- (5)
Change in unrealized
gain on securities -- -- -- -- 226 226
Reduction of par value
associated with
reorganization (12,674) 1 12,673 -- -- --
Issuance of 10,625
shares of common stock
from exercise of
options -- -- 149 -- -- 149
Purchase and retirement
of 4,350 shares of
common stock -- -- (86) -- -- (86)
Issuance of 3,719 shares
of common stock,
dividend reinvestment
plan -- -- 75 -- -- 75
-------- -------- -------- -------- -------- --------
Balance, June 30 1997 $ -- 1 171,400 9,309 226 180,936
======== ======== ======== ======== ======== ========
See accompanying notes to consolidated financial statements
9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(1) BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Rule 10-01 of Regulation
S-X. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have been
included. The financial statements should be read in conjunction with the 1996
annual report and the notes thereto.
(2) RECLASSIFICATIONS
Certain reclassifications have been made in the 1996 financial
statements to conform to the 1997 classifications.
(3) SHARE SPLIT
On March 20, 1997, the Company announced that its Board of Directors
approved a three-for-two share split in the form of a share dividend of one
share for every two shares outstanding. The share dividend was distributed
on April 7, 1997 to shareholders of record as of March 31, 1997. All share and
per share amounts have been restated to recognize the split.
(4) CORPORATE REORGANIZATION
On June 5, 1997, the Company's shareholders approved and the Company
subsequently completed the reorganization of the Trust into a Maryland
corporation. The purpose of the reorganization was to modernize EastGroup's
governance procedures and to provide EastGroup with a greater degree of
certainty and flexibility in planning and implementing corporate action by
adopting a form of organization used by many real estate investment trusts.
EastGroup will continue to qualify as a real estate investment trust for tax
purposes. Effective with the reorganization, the Company now has the authority
to issue 100,000,000 shares consisting of 70,000,000 shares of common stock,
$.0001 par value per share, and 30,000,000 shares of excess stock, $.0001
value per share. Effective June 5, 1997, all stock transactions reflect the new
par value. Stock transactions prior to the reorganization have not been
restated to reflect the new par value.
(5) SUBSEQUENT EVENTS
The Company purchased the following industrial properties subsequent to
June 30, 1997:
DATE PURCHASE
PROPERTY LOCATION SIZE ACQUIRED PRICE
- ----------- ---------- -------------- -------- ------------
Senator
Street Memphis, TN 80,000 sq. ft. 7-16-97 $ 2,700,000
Chamberlain Tucson, AZ 120,000 sq. ft. 7-22-97 4,050,000
35th Avenue Phoenix, AZ 124,000 sq. ft. 7-31-97 2,785,000
-----------
$ 9,535,000
===========
10
The Company has entered into contracts to purchase four additional industrial
properties located in Hayward, California, Santa Fe Springs, California,
El Paso, Texas and Tampa, Florida. The total investment in these properties is
estimated to be $30,228,000 and the closings are tentatively scheduled for
August and September 1997.
The Company sold its Santa Fe Energy Office Building (176,000 square
feet) in Houston, Texas on July 31, 1997 for a price of $13,000,000. The
transaction generated a gain of approximately $2,300,000. The Company has also
entered into contracts to sell its 77.78% interest in Liberty Corners Shopping
Center and its 50% interest in the Cowesett Corners Shopping Center joint
venture with closings tentatively scheduled for September 1997. The Company's
proceeds from the sells are estimated to be $11,765,000 generating gains of
approximately $4,700,000.
(6) ACCOUNTING CHANGES
In February 1997, the Financial Accounting Standards Board (FASB)
issued SFAS No. 128, "Earnings per Share". SFAS No. 128 establishes standards
for computing and presenting earnings per share and applies to entities with
publicly held common stock or potential common stock. This statement replaces
the presentation of primary earnings per share with a presentation of basic
earnings per share. It also requires dual presentation of basic and diluted
earnings per share on the face of the statement of income for all entities
with complex capital structures and requires a reconciliation between basic and
diluted earnings per share. SFAS No. 128 is effective for fiscal years ending
after December 15, 1997, and the adoption of this statement is not expected to
have a material impact on the 1997 consolidated financial statements.
Also in February 1997, the FASB issued SFAS No. 129, "Disclosure of
Information about Capital Structure". This statement establishes standards for
disclosing information about an entity's capital structure. This statement is
effective for fiscal years ending after December 15, 1997. The adoption of this
statement is not expected to have a material impact on the 1997 consolidated
financial statements.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income". This statement establishes standards for reporting and display of
comprehensive income and its components (revenues, expenses, gains and losses).
This statement is effective for fiscal years beginning after December 15, 1997.
The adoption of this statement will have no impact on the 1997 consolidated
financial statements.
Also in June 1997, the FASB issued SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information". This statement establishes
standards for the way that public business enterprises report information about
operating segments in annual financial statements and requires that those
enterprises report selected information about operating segments in interim
financial reports issued to shareholders. It also establishes standards for
related disclosures about products and services, geographic areas, and major
customers. This statement is effective for fiscal years beginning after December
15, 1997. The adoption of this statement will have no impact on the 1997
consolidated financial statements.
(7) FORWARD LOOKING STATEMENTS
Certain statements contained in this Form 10-Q may be deemed to be
forward-looking statements within the meaning of the federal securities laws.
Although the Company believes that the expectations reflected in such
forward-looking statements are based upon reasonable assumptions, it can give
no assurance that its expectations will be achieved. Factors that could cause
actual results to differ materially from the Company's current expectations
include general economic conditions, local real estate conditions, the
performance of properties that the Company has acquired or may acquire and
other risks, detailed from time to time in the Company's past and future SEC
reports.
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based upon reasonable assumptions, it can give no assurance that its
expectations will be achieved. Factors that could cause actual results to differ
materially from the Company's current expectations include general economic
conditions, local real estate conditions, the performance of properties that the
Company has acquired or may acquire and other risks, detailed from time to time
in the Company's past and future SEC reports.
12
EASTGROUP PROPERTIES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION:
On March 20, 1997, the Company announced that its Board of Directors
approved a three-for-two share split in the form of a share dividend of one
share for every two shares outstanding. The share dividend was distributed on
April 7, 1997 to stockholders of record as of March 31, 1997. All shares and per
share amounts have been restated to recognize the split.
(Comments are for the balance sheet dated June 30 1997, compared to December 31,
1996.)
Assets of EastGroup Properties ("EastGroup" or the "Company") were
$310,327,000 at June 30, 1997, an increase of $28,872,000 from December 31,
1996. Liabilities decreased $6,738,000 to $129,391,000 during the same period.
Book value per share increased from $13.78 at December 31, 1996 to $14.26 at
June 30, 1997.
Real estate properties and real estate held for sale increased
$29,003,000 during the six months ended June 30, 1997 primarily as a result of
the acquisition of seven industrial properties for $21,871,000, capital
improvements on existing properties of $2,093,000, and the investment of
$5,121,000 in six industrial developments as detailed below:
INDUSTRIAL
PROPERTIES SIZE DATE
ACQUIRED LOCATION (SQUARE FEET) ACQUIRED COST
- ----------- ----------- ------------ -------- -------------
(In thousands)
Interchange A Jackson, MS 33,000 3-20-97 $1,091
Palm River I Tampa, Fl 72,000 4-30-97 2,671
West Loop II Houston, TX 77,000 5-02-97 2,943
Lockwood Houston, TX 392,000 5-09-97 6,183
Interchange D Jackson, MS 67,000 6-13-97 3,052
Yankee Boulevard Fort Lauderdale, FL 118,000 6-23-97 3,481
Cypress Creek Fort Lauderdale, FL 56,000 6-23-97 2,450
-------
$21,871
=======
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TOTAL
COSTS TOTAL
INCURRED COSTS
FOR THE INCURRED ESTIMATED
SIX MONTHS FOR THE TOTAL
INDUSTRIAL SIZE AT ENDED YEAR ENDED DEVELOPMENT
DEVELOPMENT COMPLETION 6-30-97 12-31-96 COSTS
- ----------- ---------- --------- ---------- -----------
(In thousands)
Rampart
Distribution
II-Denver 66,000 sq. ft. $1,527 673 2,270
Chancellor
Center-Orlando 51,100 Sq. ft. 661 1,021 1,682
Walden
Distribution-
Tampa 122,283 sq. ft. 997 - 3,377
Sunbelt II-Orlando 57,600 sq. ft. 37 - 1,497
Benjamin
Distribution
I & II-Tampa 93,113 sq. ft. 1,198 - 3,657
Palm River II-
Tampa 72,000 sq. ft. 701 - 2,597
------ ------ -------
$5,121 1,694 15,080
====== ====== =======
Accumulated depreciation on real estate properties increased primarily
due to depreciation expense of $4,398,000.
Mortgage loans receivable increased $1,012,000 during the first six
months of 1997 as a result of the $1,575,000 mortgage note receivable on the
acquisition of the Palm River Center and the amortization of loan discounts of
$302,000. The terms of the note receivable are an interest rate of 8.5%, monthly
interest only payments and a maturity of April 30, 1998. Mortgage notes
receivable decreased as a result of regularly scheduled principal payments
received of $165,000 and the payoff of the Baygreen mortgage note receivable
(acquired in the Copley merger) of $700,000.
Investments in real estate investment trusts increased from $934,000 at
December 31, 1996 to $3,377,000 at June 30, 1997. This increase was due to
$2,217,000 in purchases of stock in a real estate investment trust. Also, the
Company recognized an unrealized gain of $226,000 on the Company's
available-for-sale securities in accordance with Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in Debt and
Equity Securities."
Mortgage notes payable decreased $11,124,000 during the six months of
1997, as a result of regularly scheduled principal payments of $1,089,000 and
the payoff of the following mortgages: $2,524,000 on the Nobel Center mortgage,
$5,138,000 on the Dominguez Distribution Center mortgage, $3,373,000 on the
Metro Business Park mortgage and $8,250,000 on the University Business Center
mortgage. These decreases were offset by the placement of a $9,250,000 mortgage
on the University Business Center with an interest rate of 7.45%, monthly
principal and interest of $74,235 and a maturity date of February 28, 2002.
14
Notes payable to banks increased from $13,962,000 at December 31, 1996
to $18,449,000 at June 30, 1997, as a result of borrowings of $43,984,000 and
payments of $39,497,000. As of June 30, 1997, the acquisition line had a balance
of $8,943,000 and the working capital line had a balance of $9,506,000. The
interest rate on both the working capital line and the acquisition line at June
30, 1997 was LIBOR plus 1.75% (or 7.44%). On March 27, 1997, the Company
renegotiated the interest rate on both the working capital line and the
acquisition line and reduced the rates effective April 9, 1997 to LIBOR plus
1.75%. Effective June 20, 1997, the acquisition line was increased from a
$15,000,000 available line of credit to a $20,000,000 available line of credit.
Unrealized gain on securities increased $226,000 as a result of
unrealized gain recorded on the Company's investment in accordance with
Statement of Financial Accounting Standards No. 115, "Accounting for Certain
Investments in Debt and Equity Securities."
Undistributed earnings decreased from $10,997,000 at December 31, 1996
to $9,309,000 at June 30, 1997, as a result of dividends of $8,323,000 exceeding
net income for financial reporting purposes of $6,635,000.
On June 5, 1997, the Company's shareholders approved and the Company
subsequently completed the reorganization of the Trust into a Maryland
corporation. Effective with the reorganization, the Company now has the
authority to issue 100,000,000 shares consisting of 70,000,000 shares of common
stock, $0.0001 par value per share, and 30,000,000 shares of excess stock,
$0.0001 par value per share. Effective June 5, 1997 all stock transactions
reflect the new par value. Stock transactions prior to the reorganization have
not been restated to reflect the new par value. Refer to the Consolidated
Statements of Stockholders' Equity in the consolidated financial statements for
a complete summary of changes in stockholders' equity.
15
RESULTS OF OPERATIONS:
(Comments are for the three months and six months ended June 30,1997, compared
to the three months and six months ended June 30, 1996.
Net income for the three months and six months ended June 30, 1997 was
$3,548,000 ($.28 per share) and $6,635,000 ($.54 per share), compared to net
income for the three months and six months ended June 30, 1996 of $2,034,000
($.28 per share) and $4,563,000 ($.67 per share). Income before gains on
investments was $3,553,000 and $6,528,000 for the three months and six months
ended June 30, 1997, compared to $1,378,000 and $2,554,000 for the three months
and six months ended June 30, 1996. Gains (losses) on investments were ($5,000)
and $107,000 for the three months and six months ended June 30, 1997, compared
to $656,000 and $2,009,000 for the three months and six months ended June 30,
1996.
Property net operating income (PNOI) from real estate properties,
defined as income from real estate operations less property operating expenses
(before interest expense and depreciation) increased by $3,538,000 or 77% for
the three months ended June 30, 1997, compared to the three months ended June
30, 1996. For the six months ended June 30, 1997, PNOI increased by $7,291,000
or 84% for the six months ended June 30, 1997 compared to the six months ended
June 30, 1996.
Property net operating income (loss) and percentage leased by property
type were as follows:
PNOI PNOI PERCENT
THREE MONTHS ENDED SIX MONTHS ENDED LEASED
-------------------- --------------------- ------
1997 1996 1997 1996 6-30-97
------ ------ ----- ----- -------
(In thousands)
Industrial 5,542 2,505 10,816 4,639 97%
Office Buildings 1,541 884 3,004 1,588 90%
Apartments 858 1,157 1,796 2,438 97%
Other 186 43 376 36
----- ----- ------ -----
Total PNOI 8,127 4,589 15,992 8,701
===== ===== ====== =====
PNOI from industrial properties increased $3,037,000 and $6,177,000 for
the three months and six months ended June 30, 1997, compared to June 30, 1996.
Industrial properties held throughout the three months and six months ended June
30, 1997 and 1996, showed an increase in PNOI of .2% for the three months ended
June 30, 1997 and 1% for the six months ended June 30, 1997. PNOI from
industrial properties increased $2,333,000 and $5,031,000 for the three months
and six months ended June 30, 1997, compared to June 30, 1996, as a result of
the industrial properties received in the mergers with LNH and Copley. Also
contributing to this increase in PNOI from industrial properties was the 1997
industrial acquisitions discussed previously, and
16
the acquisition of Walnut Business Center, a 234,070 square foot industrial
complex in Fullerton, California, in August 1996 and Braniff Park West, a
259,352 square foot industrial complex in Tulsa, Oklahoma, in September 1996.
These acquisitions contributed $683,000 and $1,093,000 to the increase in PNOI
from industrial properties for the three months and six months ended June 30,
1997, compared to June 30, 1996.
PNOI from the Company's office buildings increased $657,000 and
$1,416,000 for the three months and six months ended June 30, 1997, compared to
June 30, 1996. The office buildings received in the mergers with LNH and Copley
contributed $581,000 and $1,206,000 to the increase in PNOI for office buildings
for the three months and six months ended June 30, 1997, compared to June 30,
1996. Also, office buildings held throughout the three months and six months
ended June 30, 1997 and 1996, showed an increase in PNOI of 9.4% for the three
months ended June 30, 1997 and an increase of 13.8% for the six months ended
June 30, 1997.
PNOI from the Company's apartment properties decreased $299,000 and
$642,000 for the three months and six months ended June 30, 1997, compared to
June 30, 1996. This decrease is primarily attributable to the sale of the Garden
Villa Apartments in January 1996, the Pin Oaks and EastGate Apartments in
November 1996 and the Plantation Apartments in December 1996. Apartment
properties held throughout the three months and six months ended June 30, 1997
and 1996 showed a decrease in PNOI of 2.7% and .6%, respectively.
Interest income on mortgage loans increased $172,000 and $446,000 for
the three months and six months ended June 30, 1997 compared to 1996. The
following is a breakdown of interest income for the three months and six months
ended June 30, 1997 compared to 1996:
THREE MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, JUNE 30,
---------------------- --------------------
1997 1996 1997 1996
---- ---- ---- ----
(In thousands)
Interest income from mortgage loans:
Land 228 57 453 57
Apartments 133 133 264 262
Motel 78 95 171 203
Other 45 27 116 36
-------- -------- -------- --------
484 312 1,004 558
======== ======== ======== ========
Interest income from land mortgage loans increased as a result of interest
income on loans received in the merger with LNH. The LNH loans were discounted
to fair value at the merger date. This discount of $101,000 and $202,000 for
the three months and six
17
months ended June 30, 1997 is being amortized over the life of the loans and is
included in interest income. Due to uncertainty of collection, interest income
from the motel mortgage loans is recorded as received, and the notes have been
written down to their net realizable value. Interest income on other mortgage
loans increased primarily as a result of interest income on loans received in
the mergers with LNH and Copley.
Total interest expense increased $617,000 and $1,526,000 for the three
months and six months ended June 30, 1997 compared to 1996. Average bank
borrowings were $4,165,000 and $6,517,000 for the three months and six months
ended June 30, 1997, compared to $6,907,000 and $5,439,000 for the same period
of 1996. Bank interest rates at June 30, 1997 and 1996 were 7.44%(LIBOR plus
1.75%) and 7.33% (LIBOR plus 1.85%), respectively. Interest cost incurred during
the period of construction of real estate properties is capitalized. The
interest cost capitalized on real estate properties for the three months and six
months ended June 30, 1997 was $63,000 and $102,000, compared to $0 for 1996.
Interest expense on real estate properties increased primarily as a result of
the new University Business Center mortgage and the mortgages assumed in
the Copley merger. This increase in interest expense was offset by the payoff
of the Nobel Center mortgage, and the sale of the Garden Villa Apartments and
the Plantations Apartments in 1996.
Depreciation and amortization increased $750,000 and $1,720,000 for the
three months and six months ended June 30, 1997 compared to 1996. This increase
was primarily due to the properties acquired in the Copley and LNH mergers and
the industrial properties acquired in 1997. This increase in depreciation and
amortization was offset by the sale of the Garden Villa Apartments, the Pin Oaks
Apartments, Plantations Apartments and the EastGate Apartments.
The increase in general and administrative expenses of $185,000 and
$367,000 for the three months and six months ended June 30, 1997 is primarily
due to an increase in costs as a result of the Copley and LNH mergers.
In 1997, the Company recognized deferred gains of $107,000 from
previous sales. Gains on investments for the period ended June 30, 1996 resulted
from the following sales:
JUNE 30, 1996
- -------------
DISCOUNTED
DATE NET SALES RECOGNIZED
SOLD BASIS PRICE GAIN
- ----- ----- ----------- -----------
(In thousands)
REAL ESTATE PROPERTIES:
1-96 Garden Villa
Apartments $ 2,715 4,068 1,353
LAND PURCHASE-LEASEBACKS:
4-96 Bellevue - 472 472
5-96 Taco Bell 12 143 131
LAND:
6-96 Southwyck parcel 111 151 40
18
SECURITIES:
Various Liberte' stock 198 211 13
------ ----- -----
3,036 5,045 2,009
====== ===== =====
The gain on the sale of the Liberte' stock and the Southwyck parcel are gains on
investments received in the LNH merger on May 14, 1996.
NAREIT has recommended supplemental disclosures concerning capital
expenditures and leasing costs. The Company expenses apartment unit turnover
cost such as carpet, painting and small appliances. Capital expenditures for
the six months ended June 30, 1997 and 1996 by category are as follows:
JUNE 30,
--------------------------
1997 1996
--------- ---------
(In thousands)
Upgrades on acquisitions $ 364 90
New development 5,123 295
Major renovation 69 1,668
Tenant improvements:
New tenants (first generation) 210 --
New tenants 597 739
Renewal tenants 254 308
Other 597 312
--------- ---------
$ 7,214 3,412
========= =========
The Company's leasing costs are capitalized and included in other assets. The
costs are amortized over the life of the lease and are included in depreciation
and amortization expense. A summary of these costs is as follows:
THREE MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, JUNE 30,
---------------------- ---------------------
1997 1996 1997 1996
-------- -------- -------- --------
(In thousands)
Capitalized
leasing costs:
New tenants $ 280 114 385 220
New tenants (first
generation) 62 - 86 -
Renewal Tenants 134 53 255 147
-------- -------- -------- --------
$ 476 167 726 367
======== ======== ======== ========
19
Amortization of $ 170 104 324 235
Leasing costs ======== ======== ======== ========
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was $9,548,000 for the six
months ended June 30, 1997. The Company distributed $8,323,000 in dividends.
Other sources of cash were collections on mortgage loan receivables, mortgage
borrowings, bank borrowings and proceeds from the offering. Primary uses of cash
were for capital improvements at the various properties, construction and
development of properties, purchases of real estate investments, bank debt
payments, mortgage note payments and purchases of real estate investment trust
shares. Total debt at June 30, 1997 is as follows:
JUNE 30,
--------------------------
1997 1996
--------- ---------
(IN THOUSANDS)
Mortgage notes payable - fixed rate $ 103,992 102,396
Bank notes payable - floating rate 18,449 28,273
--------- ---------
Total debt $ 122,441 130,669
========= =========
The Company currently has a working capital line of credit of
$20,000,000 and an acquisition line of credit of $20,000,000 available for the
acquisition of properties and other working capital requirements. The interest
rate on both the working capital line and the acquisition line at June 30, 1997
was LIBOR plus 1.75% (or 7.44%). On March 27, 1997, the Company renegotiated the
interest rate on both the working capital line and the acquisition line and
reduced the rates effective April 9, 1997 to LIBOR plus 1.75%. Effective June
20, 1997, the acquisition line was increased from a $15,000,000 available line
of credit to a $20,000,000 available line of credit. There is also a .125% fee
on the unused amount of the $20 million credit line and the $20 million
acquisition credit line. As of June 30, 1997, the acquisition line had a balance
of $8,943,000 and the working capital line had a balance of $9,506,000. Also,
the working capital line and the acquisition line mature September 30, 1997 and
April 30, 1999, respectively.
Budgeted capital expenditures for the year ending December 31, 1997 are
as follows:
(IN THOUSANDS)
--------------
Upgrades on acquisitions $ 701
Major renovations 203
New development 14,661
Tenant Improvements:
New tenants 1,536
New tenants - first generation 371
20
Renewal tenants 587
Other 1,151
-------------
$ 19,210
=============
The Company anticipates that its current cash balance, operating cash
flows and borrowings (including borrowings under the working capital line of
credit) will be adequate to pay the Company's (i) operating and administrative
expenses, (ii) debt service obligations, (iii) distributions to shareholders,
(iv) capital improvements, (v) purchases of properties and (vi) normal repair
and maintenance expenses at its properties both in the short and long term.
In February 1997, the Company issued a total of 2,100,000 shares under
an existing shelf registration statement. The net proceeds of the offering
(approximately $36,654,000, net of underwriting commissions and expenses) were
used for the repayment of approximately $30,000,000 of outstanding indebtedness
and to fund working capital requirements, including the acquisition of
industrial properties.
The Company purchased the following industrial properties subsequent to
June 30, 1997:
DATE PURCHASE
PROPERTY LOCATION SIZE ACQUIRED PRICE
- ----------- ---------- -------------- -------- -----------
Senator Street Memphis, TN 80,000 sq. ft. 7-16-97 $ 2,700,000
Chamberlain Tucson, AZ 120,000 sq. ft. 7-22-97 4,050,000
35th Avenue Phoenix, AZ 124,000 sq. ft. 7-31-97 2,785,000
-----------
$ 9,535,000
===========
The Company has entered into contracts to purchase four additional
industrial properties located in Hayward, California, Santa Fe Springs,
California, El Paso, Texas and Tampa, Florida. The total estimate investment
in these properties is estimated to be approximately $30,228,000.
The Company sold its Santa Fe Energy Office Building (176,000 square
feet) in Houston, Texas on July 31, 1997 for a price of $13,000,000. The
transaction generated a gain of approximately $2,300,000. The Company has also
entered into contracts to sell its 77.78% interest in Liberty Corners Shopping
Center and its 50% interest in the Cowesett Corners Shopping Center joint
venture with closings tentatively scheduled for September 1997. The Company's
proceeds from the sells are estimated to be $11,765,000 generating gains of
approximately $4,700,000.
21
EASTGROUP PROPERTIES, INC.
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
On June 5, 1997, the Registrant held its Annual Meeting of
Shareholders. At the Annual Meeting, Alexander G. Anagnos, H.C.
Bailey, Jr., David H. Hoster II, Harold B. Judell, David M. Osnos,
John N. Palmer and Leland R. Speed were elected directors of the
Registrant, each to serve until the 1998 Annual Meeting. The following
is a summary of the voting for directors:
VOTE VOTE
NOMINEE FOR WITHHELD
------------------- --------- --------
Alexander G. Anagnos 11,593,740 59,272
H.C. Bailey, Jr. 11,599,193 53,819
David H. Hoster II 11,599,637 53,375
Harold B. Judell 11,595,059 57,953
David M. Osnos 11,597,624 55,388
John N. Palmer 11,277,770 375,242
Leland R. Speed 11,599,637 53,375
The following items were also approved at the June 5, 1997 Annual
Meeting as follows:
FOR AGAINST ABSTAIN NON VOTE
-------- ------- ------- --------
(1)Approval of the
proposal to reorganize
the Trust from a
Maryland real estate
investment trust to a
Maryland business
corporation 8,507,883 142,565 129,292 2,873,271
Item 6. Exhibits and reports on Form 8-K
(a) Exhibit 27 - Financial Data Schedule attached hereto.
(b) Reports on Form 8-K
None
22
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DATED: August 14, 1997
EASTGROUP PROPERTIES, INC.
\s\ Diane W. Hayman
- ------------------------
Diane W. Hayman, CPA
Controller
\s\ N. Keith McKey
- ----------------------
N. Keith McKey, CPA
Executive Vice President,
Chief Financial Officer
and Secretary